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Time Series Modelling of Inflation in Botswana Using Monthly Consumer Price Indices

Author

Listed:
  • Kesaobaka Molebatsi
  • Mpho Raboloko

Abstract

This paper identifies an autoregressive integrated moving average (ARIMA (1,1,1)) model that can be used to model inflation measured by the consumer price index (CPI) for Botswana. The paper proceeds to improve the model by incorporating the generalized autoregressive conditional heteroscedasticity (ARCH/GARCH) model that takes into consideration volatility in the series. Ultimately, CPI is forecast using the two models, ARIMA (1, 1, 1) and ARIMA (1, 1, 1) + GARCH (1, 2) and compared with the actual CPI. Both models perform well in terms of forecasting as their 95 percent confidence intervals cover the actual CPI. Marginal differences that favour the inclusion of the ARCH/GARCH components were observed when testing for normality among error terms. The paper also reveals that volatility for Botswana¡¯s CPI is low as shown by small values of ARCH/GARCH components.

Suggested Citation

  • Kesaobaka Molebatsi & Mpho Raboloko, 2016. "Time Series Modelling of Inflation in Botswana Using Monthly Consumer Price Indices," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 15-22, March.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:3:p:15-22
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    References listed on IDEAS

    as
    1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    2. Haile K. Taye, 2013. "Inflation Dynamics in Botswana and Bank of Botswana's Medium-Term Objective Range," Working Papers 36, Botswana Institute for Development Policy Analysis.
    3. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    4. Atta, J K & Jefferis, K R & Mannathoko, I, 1996. "Small Country Experiences with Exchange Rates and Inflation: The Case of Botswana," Journal of African Economies, Centre for the Study of African Economies, vol. 5(2), pages 293-326, June.
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    Cited by:

    1. Olalude, Gbenga Adelekan & Olayinka, Hammed Abiola & Ankeli, Uchechi Constance, 2020. "Modelling and forecasting inflation rate in Nigeria using ARIMA models," MPRA Paper 105342, University Library of Munich, Germany, revised Dec 2020.
    2. Nyoni, Thabani & Nathaniel, Solomon Prince, 2018. "Modeling rates of inflation in Nigeria: an application of ARMA, ARIMA and GARCH models," MPRA Paper 91351, University Library of Munich, Germany.

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    More about this item

    Keywords

    ARIMA; ARCH; GARCH; CPI; inflation;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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